Mediation Settles AIG/CEO Fight as their Agreement Turns the Neutral into a Post-Settlement Arbitrator (Web)
November 30, 2009
Last week, American International Group Inc., and Maurice Greenberg, AIG’s former CEO, reached a mediated settlement that ended a four-year legal battle over the end of Greenberg’s tenure with the insurance giant.
The parties reached a "Memorandum of Understanding" on Thanksgiving Eve in a mediation overseen by Layn R. Phillips, a partner in the Newport Beach, Calif., office of Irell & Manella, and a former federal judge.
Under the settlement agreement terms filed with the U.S. Securities and Exchange Commission, Phillips will continue to preside over the case, making determinations on fee amounts more akin to an arbitrator.
The New York Times reported Thursday that Phillips still must decide the amount of legal fees that AIG will pay under the settlement to Greenberg and to AIG’s former chief financial officer, Howard I. Smith.
The Times article says that the legal fee payments could be as high as $150 million for the claims made by Greenberg and Smith, which involved more than just the work the executives had done at the company. Greenberg also filed suit for the return of archival materials for work on his memoir, and personal property, including, among other office furnishings, a Persian rug. Mary Williams Walsh and Michael J. De La Merced, "Greenberg and A.I.G. Settle Legal Disputes," New York Times (Nov. 25)(available here).
Last year, the federal government bailed out AIG, and retains a controlling stake in the company.
The company had sought the return of some of the executives’ compensation. Serena Ng, “Truce Opens Door for AIG, Greenberg,” Wall Street Journal (Nov. 27, 2009) (available with subscription here).
Under the settlement terms filed with the SEC, several court actions that the former AIG executives had against the company, and AIG’s counterclaims and suit against them and against C.V. Starr & Co., Greenberg's business venture; will be dismissed.
Greenberg was a major AIG stakeholder even after the abrupt end of his 37-year relationship with the company in 2005. He also remained a common stockholder after the government took control of AIG. Greenberg has publicly criticized the takeover, and has hired away AIG’s talent for C. V. Starr.
The mediation has its roots in the August hiring of AIG CEO Robert Benmosche. The Wall Street Journal article contrasts Bennosche’s outreach to Greenberg when he joined the company last summer to the contentious relationship Greenberg had to previous AIG CEO Edward Liddy.
The settlement provides mediator Layn Phillips with the power to determine who gets what. It states:
AIG agrees to reimburse Greenberg and Smith’s reasonable legal fees and expenses, not including any amounts paid in settlement, up to a maximum amount of $150 million, that (a) they have incurred, (b) in connection with indemnifiable civil matters, and (c) on which they have been successful (as defined under Delaware law). The parties agree that Hon. Layn R. Phillips will have sole authority to determine which matters meet these conditions and will oversee a process for reviewing legal bills and appropriate back-up documentation to determine the reasonableness of the fees and expenses requested relating to those matters. In the event Greenberg and Smith do not submit legal fees and expenses meeting these conditions that total $150 million, they shall receive such lesser amount as Hon. Phillips determines satisfies the conditions. In no event shall Greenberg and Smith be entitled to receive more than $150 million pursuant to this paragraph. . . .
The Wall Street Journal’s Source blog posted the full settlement agreement, here.
The final term of the settlement, Paragraph 11, completes mediator Phillips’s transformation into a de facto arbitrator. It says:
The Parties agree that Hon. Layn R. Phillips (and, if he is unable to serve, Hon. Daniel Weinstein) will have exclusive and binding authority to interpret and resolve any disputes arising in whole or in part from this [memorandum].
Weinstein is a neutral in the San Francisco office of JAMS.
The discussions between the parties, according to the settlement agreement, were a mediation from the start, but with a twist. In an introductory clause, the agreement notes that mediator Phillips had the power to “to attempt to resolve” the disputes, and that he had recommended the resolution that was filed with the SEC.